Economic Intelligence Unit Baroda Corporate Center Bank of Baroda Mumbai eiu.bcc@bankofbaroda.com November 21, 2015 Weekly Macro Perspectives -------------------------------------------------------------------------------------------------------------------------------------- Indian Economic Briefs Wholesale Price Index (WPI) inflation for Oct-15 stood at (-)3.81% vis-a-vis ( -)4.54% in Sep-15, which is the twelfth consecutive month of negative reading. India s imports for Apr-Oct 2015 stood at USD 232.05 billion, down by 15.17% yearon-year (y-o-y), while exports fell by a sharper 17.62% (y-o-y) coming in at USD 154.29 billion. Consequently, trade deficit for fiscal year so far stood at USD 77.76 billion vis-a-vis USD 86.27 billion in corresponding period last year. The cumulative indirect tax collections rose 35.9 per cent, to 3,82,860 crore in Apr- Oct 2015. This amounts to 59.2 per cent of the targeted 6,46,267 crore from indirect taxes in Budget 2015-16. The sharpest rise was in excise duty collections that grew 68.6 per cent to 1,47,685 crore during the period. Customs duty collections rose 16.8 per cent to 1,22,448 crore, while service tax receipts increased 26.1 per cent to 1,12,727 crore. The Government has wound up the Board for Reconstruction of Public Sector Enterprises (BRPSE) as part of its new strategy to revive and disinvest sick public sector units. The Board for Reconstruction of Public Sector Enterprises (BRPSE) under the Department of Public Enterprises was set up over a decade ago in 2004 as an advisory body to address the task of strengthening, modernisation, reviving, and restructuring. The Government has decided to wind up BRPSE to streamline the multiple mechanisms for the revival of sick Central Public Sector Enterprises The Seventh Pay Commission has recommended a 23.55% rise in overall salaries and pensions of government employees, effective from January 2016. The total financial impact in the FY 2016-17 is likely to be 1,02,100 crore. Historically, past pay commissions have been seen to boost consumption, raise inflation and add to the fiscal burden. The government s commitment to its fiscal consolidation target despite this implies a cut in capital expenditure and higher taxes and disinvestments in the FY17 budget. A study of the performance of 2,074 companies by CARE Ratings showed that net sales declined by 5.3% in H1-FY16 as against growth of 7.0% in H1-FY15. Net profit witnessed a positive growth of 4.1% which was however lower compared with 24.8% growth in H1-FY15. The negative growth in net sales is largely attributed to weakness in demand and pricing power. Despite negative producer s inflation as measured by the WPI signaling also lower raw material costs, growth in profits do not appear to be satisfactory. 1
The Cabinet Committee on Economic Affairs approved a 10 per cent disinvestment in Coal India, the third government stake sale in the company's history. The government is expected to get around Rs.20,000 crore from the disinvestment. The Cabinet today approved the interest subvention scheme that would allow small and medium sectors exporters to avail of loans from banks at a 3 percent lower rate. The government has provided for Rs 2700 crore, the amount the interest subvention scheme will cost the exchequer. The Reserve Bank of India (RBI) issued revised directions necessitating prior approval for acquisition of shares or voting rights in private sector banks. Any individual or company acquiring five per cent or more in a private bank through convertible bonds, in addition to a direct purchase of shares, will need to take prior approval from the RBI. According to data released by the Telecom Regulatory Authority of India (TRAI), the country s telecom subscriber base grew by 8.43 million in September 2015. While the wireless subscriber base grew by 8.49 million, the wire-line subscriber base declined by 0.06 million. The total subscriber base stood at 1.02 billion at the end of September 2015. As of October 30, 2015, the aggregate deposits of scheduled commercial banks (SCBs) grew at 11.1% on year on year basis as against 11.2% in the corresponding period last year. The credit growth was at 9.0% as on October 30, 2015 as against 10.7% in the same period last year. Monthly Data for Indian Economy (growth y-o-y in per cent) Month IIP Core Sector Capital goods Consumer goods CPI WPI Exports Imports Apr-15 3.4-0.4 5.5 2.8 4.9-2.4-14.8-7.9 May-15 2.5 4.4 2.2-2.1 5.0-2.2-20.5-16.3 Jun-15 4.4 3.0-2.1 7.7 5.4-2.1-14.0-13.8 Jul-15 4.2 1.1 10.6 0.88 3.7-4.1-10.3-10.7 Aug-15 6.3 2.6 21.4 5.9 3.7-5.0-20.7-9.9 Sep-15 3.6 3.2 10.5 0.6 4.4-4.5-24.3-25.4 Oct-15 5.0-3.8-17.5-21.2 CPI is for combined index Source: CSO, Office of economic Advisor and Department of Commerce Agriculture Updates The Andhra Pradesh Government has sought 1,000 crore from the Centre as immediate financial assistance, to take up relief and rehabilitation measures in the rain-ravaged parts of the State. Total area sown for Rabi crops touched 12.3 million hectares by 13 November 2015. This was 22.6 per cent lower compared to the same period last year. On a y-o-y basis, area sown under pulses rose by 13 per cent to 3.9 million hectares by 13 November 2015. Also, area sown for coarse cereals rose by 24.5 per cent to 3.5 million hectares. 2
But, area sown for wheat fell by 56.5 per cent to 1.9 million hectares on a y-o-y basis. Area sown under oilseeds fell by 42.5 per cent to 3.1 million hectares and that under rice fell by 52.8 per cent by 13 November 2015 on a y-o-y basis. Equity Markets Global markets delivered a strong performance this week. Sentiment improved significantly after the minutes of the US Fed meeting last month were made public. These showed that the pace of rate hikes would be gradual. Given the positive sentiments, the Indian benchmark stock indices gained during the week under review. Government and Bond Markets The markets remained range bound during the week on the back of 7 th Pay commissions report and increased possibility of US fed rate hike in December 2015. The 10 year benchmark 7.72% GS 2025 closed at 7.70% as on November 20, 2015 as against 7.65% as on November 13, 2015. 8.00 GoI, 10 yrs bond yield(7.72% 2025) 7.90 7.89 7.80 7.70 7.60 7.50 7.40 7.7 7.56 7.54 7.56 7.72 7.30 GoI, 10 yrs bond yield(7.72% 2025) Foreign Exchange Markets During the week, the rupee depreciated from Rs 66.1 on November 13, 2015 to Rs 66.48 on November 23, 2015. India s forex reserves rose by USD 780.9 million to USD 352.5 billion during the week ended 13 November 2015 3
Crude Oil Prices Weekly data from Baker Hughes showed that the number of US oil-drilling rigs fell by 10 to 564 as of November 20, 2015. Natural gas rigs were unchanged at 193 but the fall in oil rigs helped shave the total rig-count number down to 757 rigs for the week. A reduction of rigs offers some promising signs that a glut of supply from US shale producers might abate. Global News The European Central Bank lowered the cap on emergency liquidity assistance Greek banks can draw from the domestic central bank by 300 million to 85.7 billion. The move reflected an improvement in liquidity conditions in Greece's banking sector, amid a reduction of uncertainty and the stabilisation of private sector deposit flows. Greek banks have relied on the emergency liquidity assistance (ELA) since February after being cut off from the ECB's funding window. The US Fed minutes signaled that the officials expect to start raising rates at the December 15-16 FOMC meeting, noting some participants thought that the conditions for beginning the policy normalization process had already been met. Most participants anticipated that, based on their assessment of the current economic situation and their outlook for economic activity, the labor market, and inflation, these conditions could well be met by the time of the next meeting. Japan s economy contracted in the third quarter as business investment fell. The nation fell into its second recession since Prime Minister Shinzo Abe took office in December 2012. Gross domestic product declined an annualized 0.8 percent in the three months ended Sept. 30, following a revised 0.7 percent drop in the second quarter, meeting the common definition of a recession. 4
Annexure 1 Macro Indicators (Annual) 2012-13 2013-14 2014-15 GDP and Related Indicators GVA at Basic Prices (current prices) (in Trillion) 92.5 104.8 115.5 GVA at Basic Prices (2011-12 prices) (in Trillion) 86 92 98 Growth of GVA at Basic Prices (2011-12 prices) (%) 4.9 6.6 7.2 Saving Rate(% of GDP) 31.8 30.6 na Capital Formation (% of GDP) 36.6 32.3 na Production Food Grains (Million Tonnes) 257.1 265.6 251.12 Index of Industrial Production (growth %) 1.1-0.1 2.8 Eight Core Industries (growth %) 6.5 4.2 3.6 Inflation Inflation (WPI) (y-o-y) 7.4 6.0 2.0 Inflation (CPI) (y-o-y) 10.27 10.2 5.93 External Sector Foreign Exchange Reserves (US$ billion) 292 304.2 328.7 Exports (US$ billion) 300 315 309 Imports (US$ billion) 490 449 447 Trade Balance (US$ billion) -190-134 -138 Invisibles (US$ billion) 107 115 116 Current Account Balance as % of GDP -4.79-1.73-1.34 Money and Credit Scheduled Commercial Bank Credit (% change) 14.1 13.9 12.6 Fiscal Indicators (Centre) Gross Fiscal Deficit (% of GDP) 4.8 4.5 4.0 Source: RBI, CSO, Department of Commerce, Office of Economic Advisor 5
Annexure 2 Macro Indicators (Quarterly) Q1 FY14 Q1 FY15 Q1 FY16 Q2 FY16 GDP and Related Indicators GVA at Basic Prices 29.36 29.08 30.3 (current prices) (in Trillion) GVA at Basic Prices 22.43 24.09 25.8 (2011-12 prices) [in Trillion] Growth of GVA at Basic Prices (2011-12 prices) (%) 7.2 7.4 7.1 Production Index of Industrial Production (growth) % Eight Core Industries (growth %) -1.0 4.45 3.2 4.6 3.67 5.97 2.37 2.29 Inflation Inflation (WPI) (y-o-y) 4.8 5.8-2.3-4.5 Inflation (CPI) (y-o-y) 9.88 7.85 5.09 3.95 External Sector Foreign Exchange 284.6 315.7 355 Reserves (US$ billion) Exports (US$ billion) 72.3 79.7 66.5 66.1 Imports (US$ billion) 119.7 113.2 98.7 101.7 Trade Balance -47.5-33.5-32.2-35.5 (US$ billion) Current Account deficit % of GDP 4.8 1.6 1.2 Money and Credit Scheduled Commercial Bank Credit (% y-o-y) Source: CMIE 13.68 13.01 9.01 9.12 6
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